2005: The Year Ahead
Donald R. Libey
Libey Incorporated
Advisors and Intermediaries for the Direct Marketing
Industry
What will 2005 bring? What used to be fairly simple-predicting next year's events-has become very tenuous. So much can happen so fast that the art of futurist thinking is more and more like horse racing.
Any end-of-the-old-year/beginning-of-the-new-year outlook has to carry with it the disclaimer if certain events occur, all bets are off. That is particularly true with the unstable situation in the Middle East and the correspondingly unstable U.S. position relative to that part of the world. That being said, we should try to turn our gaze instead to the significant and shaping events that are occurring in direct marketing.
Online
The Google success story has, I believe, far reaching implications for the direct marketing world. For online access and information, Google is for 2005 what AT&T was for telecommunications in the 1970s and 1980s. Whether you wish to admit it or not, direct marketing is about access and Google and its competitors will increasingly control that access in 2005. Another way of stating the online outlook for 2005 is that search engine marketing will achieve wider recognition of its importance and its strategic exclusivity among smart direct marketers. A few intelligent companies will understand that access will be very expensive in a short time and those intelligent people are taking steps to assure they are members in the exclusive tier of search engine accessed direct marketing beginning to take shape. Let's look at 2005 for a moment and speculate on what might take place.
Here comes a really heretical concept: Buying no longer is a matter of who, what, where or how. Shopping is a matter of word description. In other words, I will no longer associate buying pears with Harry & David. Instead, I will associate buying pears with the words "pears" or "fruit" or "gourmet pears" or any of fifty-eight other related words or word combinations. That is exactly what Google and its ilk are doing: Changing the habits of buying.
Let's look at another example to see if we can get a handle on the future importance of online merchant reputation, service and trust. Ten years ago not one of you would have sent a check for $500 to a merchant known only as squinchymoe@dolls.com. This is a business you don't know, have never bought from, have no experience with and have no basis whatsoever for entrusting with your $500. Add a five-star rating system, a few reviews and you've got . . . that's right: E-bay! Millions of people send money to other people they've never heard of-safely and securely-and have no reason to trust because E-bay has "changed the habits of buying." They are, in effect, controlling access.
How about another example? In 2005, another direct marketing organization will continue to change the habits of buying dramatically: Amazon. Today, Amazon is a "must have" marketing affiliate for many catalog and direct marketing companies. Amazon has the ability to do as much sales in one day as you may have done in two weeks. It's all about access. Amazon has "changed the habits of buying."
In 2005, the momentum for thought-activated word shopping will advance rapidly. Google, E-bay, Amazon and all of the look-alikes will achieve a growing importance in the definition of direct marketing; cataloging will have a closer link to entities like Google's Catalog and Froogle links. Maybe the massive Google catalog archive will be released from beta and be renamed Googalog.
Web and WorldNet
Actually, the World Wide Web is beginning to die. It has evolved from its academic/military beginning and has about reached the limits of its innovation quotient. From here on out, expansion on the web will be simply more of the same. We have reached a point where the concept of the web now must change in order for it to shed its impurities and morph to the next higher level of information structure evolution.
That next higher level of evolution of information structure is being conceived now. It is something likely to be called the WorldNet. It will have, as one component, the Internet, but will also enfold wireless, satellite, On-Star, utility meters for your water, gas, electricity, cell phones, cell phone photos, land-line telephones, I-pods, GameBoys, DVD archives, libraries, financial transactions, markets, consumer history, demographic cells, health history, education delivery, entertainment and every other technological advancement and centralization and access control of information, all rolled into one converged and ubiquitous WorldNet that will be accessible from any of thousands of system access points. If you thought the Internet was all-encompassing, the WorldNet will be the megalith of informational structure and you will be able to burrow into any part of it you require from anywhere using any technological access media you wish to use. Think of it as in-door plumbing for the mind. Turn on the tap and out comes whatever it is you conceived in whatever form you desired. This is the true technological frontier and it is being described, planned and constructed as you read this. And a very few, very smart direct marketers will begin explorations of how they will fit their businesses into this new and powerful technological structure.
Circulation
Circulation will increase in 2005. I predict a minimum 5 percent increase and up to 10-12 percent in certain specific niche markets that still have low-hanging fruit and scalability, both for business-to-business and consumer. Those increases, however, will come as a combined channel increase; that is, some portion of the 5 to 12 percent increases will be in catalog, some in e-mail, some in telemarketing, etc. Inserts are suddenly a big deal and insert programs are enjoying expansion. Other media and channels will ratchet overall circulation up in 2005.
But, circulation is a conceptual term. What will it mean in 2005 compared to 2004? Clearly, the online emphasis is growing; the prospecting pendulum is once again swinging to the upside; new customer acquisition-across all channels-is high priority. Circulation is also a geographic term. A few bold companies are establishing early operations in India, a country with 300 million people who meet the U.S. definition of middle class income. Circulation for those companies is a very different concept in 2005. And, let’s be candid: Circulation will have to once again include international as our nation is becoming less important in the global economy that we must all compete in to grow. The early B2B experience with international direct marketing in the 1980s and 1990s will be seen as the first attempt; the second attempt to expand internationally will be the one that creates significant multi-channel, truly multi-national direct marketing companies and at that point circulation is a whole new ball game. And it begins in 2005. It has to begin in 2005.
Prices
Prices in 2005 will go up 5 to 10 percent. Direct marketing companies will be able to take price increases; in fact, will have to take price increases to cover increases in almost every expense category. The wild card here is the effect of the pure play net gnats that have reemerged as strong players after the dot-com collapse. In case you have not noticed, there are a plethora of successful net gnats for almost any individual product you can think of today. Where we once had competitors in office supplies, now we have individual web competitors in just staplers or paper shredders. You can go to www.weddingbands.comand see what these net gnats are doing to the jewelry business. These small, take-one-or-two-percent-share online businesses are proliferating and they are masters of search engine marketing. After all, it’s the only thing they have to spend money on since they have no facilities, catalogs, employees, or other overhead expenses, just a closet and a few computers and servers.
Branding and Multi-Position Marketing
It's on everybody's lips. Branding and private labeling in 2005 will continue to gain momentum among direct marketers seeking to differentiate themselves and add some degree of perceived value. Any catalog company with solid name recognition can potentially benefit from private labeling and a branding initiative. At the very least, it can add to the corporate valuation. But, I think in 2005 we will begin to see branding associated with search engine marketing, perhaps more than catalog name because there are so many more opportunities for a brand-key word link. Suddenly the brand name and all the potential word descriptions of individual products take on new importance.
For some direct marketers who have already mastered multi-channel marketing, the brand will offer the opportunity for establishing two, three or more quality and price positions within the various channels. As an example, a catalog has its name brand products at the top end and uses all channels; it has another separate mid-quality brand for the Internet; and it has a third clearance brand for both a low-end catalog or flyer and a separate Internet site. The concept of capturing and dominating all three market positions is not yet common and in 2005 this will begin. You heard it here first: After multi-channel marketing comes multi-position marketing.
Wholesale Channel
In 2005, many direct marketers will turn to the only remaining channel they can easily enter: Wholesale. I said this in 2004 and a fair number of companies began some tentative wholesale relationships this year and that momentum will grow in 2005. It is logical and it is necessary to increase market share and to grow. The B2B marketers will be the primary movers in wholesale for one powerful reason: Inoculation against the net gnats. If you are going to have to spend huge amounts of money to combat interlopers in your space, why not sell to them and solve the problem? Many catalogers will begin to explore drop shipping for net-affiliate merchants. Here is where your fulfillment expertise starts to influence your channel choices. It might cost you on margin, but you may compensate in fulfillment revenues and overall volume, meaning efficiencies in filling fewer orders but larger orders for a greatly enhanced average order value.
Print Production
2005 will bring nail-biting competitiveness between major printers, a number of which are starting to feel the competitive pinch up against visionary printers who understand the end-game: Consolidation. There are not going to be any new entries to the large print production vendors; rather, there will be fewer in 2005 and beyond.
In printing, it's all about front-end and crew efficiencies. With full Direct-to-Plate and advanced streaming technologies, those printers who can print the greatest number of overall signatures with the fewest crews can offer cost-savings to customers. In 2005, companies like QuadGraphics, which is stacking presses one on top of another and running more print lines with fewer crews, and doing it better than anyone else, will be the competitive winners. As paper prices increase and postage costs begin to increase again, the buying process for print production will focus on the back-end economics of printing, a focus that has not been the primary experience in a number of years.
This is the year to compare costs of the press-related expense of the catalog. The new 64-page presses Quad is using can offer additional savings when coupled with lower crew requirements. Your risk is that you are locked into inefficient print production contracts with printers who neglected to figure out an economic cure for consolidation. That failure should not be your expense to pay for.
Postage
Can there be any doubt? Postage costs will go up at the end of 2005 and I am advising that you prepare for a minimum of 15 percent increase, maybe higher. There has been no postal reform nor does it appear there is going to be any; that means rate hikes. Your silent partner, Uncle Wiggly, has a lot of rabbits to pay retirement for, and postage rates seem to be the best bet given a recalcitrant congress and zero administration pressure. Welcome to the end of the three-year postal rate moratorium! Grab your ankles!
Wine
I think there will be some great prices for good wines in 2005. Huge production overages in France and Italy are driving prices to the bottom, and venerable vineyard and winery bankruptcies are beginning to be seen. Great production coming from Spain, Portugal and Chile and quality is improving every day. This will pressure California producers who have been quite aggressive on pricing what are only moderately good production reds. The Law of Substitutes is alive and well. I know this has nothing to do with direct marketing, but it's good to know you will continue to get a nice, well-made red in 2005 for under $10. I'm always looking for Heart Healthy foods for you.
Privacy and Other Legislation
Pray that Eliot Spitzer doesn't turn his attention to direct marketing next. With so much information directly and indirectly linked to the so-called Patriot Act, there is every possibility that additional restrictions on information are going to be seen in 2005. What remains to be seen is the DMA's commitment to taking a stand on these matters and the (at long last) early dialogue that direct marketing needs to improve its image. Perhaps there will be movement in that direction, however my bet is that additional erosion in information gathering and dissemination will be seen in 2005. Developing proprietary prospecting databases, where feasible and affordable, may be the best answer. Clearly, taking full advantage of cooperative and shared databases, such as MeritBase, makes a great deal of sense. Now is the time to do as much prospecting investment as you can possibly do, before the postal price hikes and before more stringent restrictions are put in place by legal zealots and the FTC.
Telecommunications
Your existing telephone systems may be in for an upgrade in 2005. The systems that integrate with the Internet are going to save you money and give you capability you only dreamed about before, especially where large call centers are being staffed. If you haven't had a demonstration of the state-of-the-art telephone systems which use Voice Over Internet Protocol (VOIP) with its attractive no long distance costs, now is a good time to get one scheduled. These are amazing systems that take connectivity to a whole new level. Remember, in 2005 it's all about access.
Acquisitions
Putting aside the "bigs," those mega-companies of direct marketing who have already bought up everything they can find, we will see in 2005 the acceleration of small and middle market consolidation in direct marketing. Companies in the $10 million to $50 million range will be looking for $2 million to $15 million multi-channel direct companies to purchase. And, the $4 to $15 million companies will also be looking to buy even smaller companies in the $500,000 to $2 million range because they need to grow, too. These will, by and large, be strategic buyers who need more market share, more customers, more revenues and the economies of consolidation scale that drive lower costs. The private equity funds, however, will likely become even more aggressive as they have massive amounts of investment money to put to work, and direct marketing remains an attractive segment for them to invest in due to the multi-channel efficiencies and the huge jump catalogers had over retailers and other channels.
Talent
2005 is likely to be the year of the Search Engine Maven. For those of you still kicking and screaming about this sub-channel (or possibly stand-alone channel), Search Engine Marketing is actually a full-blown channel with unique attributes, skills and knowledges. This is not the bailiwick of traditional marketing types, rather it is a specialty and deserves to be developed as a specialty discipline within direct marketing, certainly within Internet marketing.
Proven talent in Search Engine Marketing will be hard to find and expensive. Consider: A person with three-years of experience has probably been there since day one in SEM and is in high demand. I know a couple of computer guys who most people would consider total geeks, but they know more about search engines than anybody ought to be allowed to know. And they have absolutely nothing to do with direct marketing or catalogs. If you're smart, you'll go out and hire a couple of really weird 'gamers' and get them involved in ginning up your SEM programs. We are talking about a whole new way of viewing the world; you need enthusiasts sporting dittas and really bushy sideburns, not perfect résumés.
Customer Service
While CRM is anathema and excommunicato to me generally, there is a very real chance that 2005 will bring yet a further erosion to customer services which have all but fallen irretrievably into the clutches of these inane CRM systems. Worse, it doesn't appear to matter. As with health care, education, taxation, politicians, or about anything else you care to name, the American public seems perfectly resigned to being pushed around, ignored, stepped on, lied to and treated with contempt . . . and comes back for more. I personally cannot think of a year that was so bad for basic customer service than 2004 and I fear 2005 will be even worse. There are shining examples that refute this assertion, but they are becoming rarer and they are giving up a little bit at a time. 2005 will likely see direct marketing and cataloging drawing closer to the customer services delivered by retailers, and that is about as low as it goes. Why do we do this? Our industry was built on great service.
Overall Growth
Despite the positives and the negatives, this year, I have every belief that the full direct marketing segment of the American economy will outpace any other segment and that we will see for all channels combined an overall 8 percent growth (or perhaps a point better) in 2005 barring any major socio-political disruption. That is a growth rate that assures the money will flow into all channels that contribute to this success story. The long and short of it: Mail more. Prospect more. Acquire more. Brand more. Online SEM more. Hire weird more. Print cheaper more. Wholesale more. And drink more wine.
Go forth into 2005 . . . and multiply more!
